Fixing the Doc Fix

October 28, 2014

Medicare's "doc fix" is in need of reform, argues Hadley Manning, the director of health policy at the Independent Women's Forum.

Since 1997, the "Sustainable Growth Rate" (SGR) formula has been a part of Medicare, intended to control costs by automatically reducing, from year to year, reimbursement rates for doctors participating in the Medicare program.

In reality, however, the cuts do not take place; since 2003, Congress has overridden the SGR and prevented the cuts to doctors. This is more commonly known as the "doc fix." Manning explains why the SGR cuts and doc fix are so problematic:

Medicare needs to cut costs (the Medicare Trust Fund is running out of money and the program has a 75-year unfunded liability of $30 trillion), but if the SGR cuts as they are currently set take place, doctors -- many of whom are already unwilling to treat Medicare patients -- will be more likely to refuse to take new Medicare patients.

Medicare already reimburses doctors less than private plans. In 2013, 28 percent of Medicare patients had difficulty finding a new doctor. With the SGR cuts, that number will rise, because doctors will have little incentive to take on new patients.

Doctors who do take on Medicare patients raise their prices on patients with private insurance plans to make up for losses. According to Milliman, a consulting firm, a typical privately-insured family pays $1,800 more than they otherwise would to health care providers in order to make up for underpayments from the government.

The doc fix leads to lobbying every year on the part of doctors' groups, which Manning deems a waste of resources.

It masks the costs of health care, because budget scoring agencies -- which incorporate the SGR cuts into their budget predictions -- produce inaccurate and misleading estimates of Medicare's costs.

Manning says that Medicare needs a real, long-term solution for doctor reimbursement. Rather than the annual doc fix, she suggests transforming Medicare into a premium support program, meaning that the government would give seniors funds with which they could purchase their own private insurance plan. As a result, seniors would have more choice and reimbursement rates would be determined not by a government formula but by doctors and insurance companies.